Set For a Major Down Move - 6608 views

WINSTON-SALEM, N.C. (Magnum Opus Financial ) -- Welcome back to L@tM. We are finally getting the move that we have been planning for. Yesterday we exited a number of trades with big profits (CAT, CMI, FFIV and PH ) ahead of our Bearish positioning. Hopefully you caught L@tM from yesterday. If you did, today’s move down is no surprise.

Honestly, we are now positioned for a bigger move to the downside. If we give up the 1200 level on the S&P 500, then there is every reason to believe that we revisit at least the 1120 level, if not a full retest of the 1101 lows.

At that point, if the world has improved or we get to see good earnings hold up in the face of the larger global-macro challenges, we will look again at getting long some things. We did see from JOYG that mining really is in good shape and continues to be in a secular bull market.

The challenge is that the stocks of companies like BHP, CAT, JOYG are getting taken down with everything else. Ideally we’ll get better prices for these companies in September before they start reporting. If we do, then we can get positioned for upside ahead of earnings.

We do continue to like the fertilizers CF, POT and MOS. While they are high beta, and will get sold off with the overall market (sometimes more violently because of the beta), there is clearly a secular bull market in the agricultural trade (grains, ferts, equipment makers, etc.). MOS under $70 has been a great place to get long and we like CF as close to $180 as you can get it.

With CF, we grabbed the October 155/160 Mirror Spread today for $3.05. Remember that the Mirror Spread is a long call spread (155/160 October Call Spread) and a short put spread (155/160 October Put Spread). You can sell a Mirror Spread (as we did for GS at the 115/120 level last week) as well as you can buy one.

GS has been volatile, so be sure to take the profit as we get closer to September OpEx. GS is a stock that can move $3-$4 a day. So when you have a nice green profit, don’t be afraid to take it, as the cushion on that trade is only $2 right now. The CF trade has a better than $20 cushion on it, so we’re much more comfortable letting that one ride.

Other than that, we are really not doing a ton right now until we see the S&P 500 give up that 1200 level. Right now, it’s still above the 1207 level and the more days it stays there, the more likely it is that the next move is up.

But, there are a number of hurdles between here and higher stock prices. The biggest of those is the morass in Europe. There will be a cloud over world markets as long as Europe remains a “risk.”

Be careful out there, until you see some resolution in the world by the governments of China, U.S., Latin America and Europe. Enjoy your afternoon and we’ll see in the NWATrading chat room and tomorrow on L@tM.